• Say Yes to 504 Loans with Third-Party Interim Loans

    Community Business Finance provides businesses with fixed-rate financing for major fixed assets such as office buildings, retail buildings, warehouse facilities, heavy equipment, and commercial vessels. Projects are typically financed with two loans: a first lien loan through a commercial lending partner for 50% of the project cost and a second lien loan for 30% - 40% of the project cost, financed by Community Business Finance through the sale of a debenture bond. The borrower provides up to a 20% down payment, but typically only 10%.

    Since the 504 Loan Program is a take-out financing program, the SBA's portion of the loan does not fund immediately at the closing table. The commercial lending partner structures interim financing (bridge loan) loan for up to 90% of the project cost. At closing, the lender funds the interim loan, and the SBA funding, which occurs post-closing, pays off the SBA's portion of the interim loan once the debenture bond is sold.

    However, some banks are not comfortable with 90% loan to value during this interim period. While it is true that the risk goes up during this time, for projects with no construction phase, the bridge period is usually 90-120 days. This is a small window of increased risk. Obviously with new construction or renovations, this period is much longer and ends when the project is completed, but it is possible for lenders to avoid this risk increase altogether. An additional interim lender can provide a bridge loan, allowing the first lien holder to keep their loan to value ratio at 50%.

    Additionally, some lenders cannot provide interim financing because the amount will exceed their legal lending limits. Lending limits are the maximum dollar amount that a single bank can lend to a given borrower. By using an alternative lender to provide the bridge financing, the original lender can still participate in the 504 Loan Program without exceeding their lending limit.

    Community Business Finance values its relationship with lenders, and we believe in working with our lending partners to offer the best loan terms to borrowers.

    Contact our offices directly to discover how partnering with Community Business Finance allows commercial lenders to offer the 504 Loan Program to their clients.

    Jeanne Bergeron
    Business Development Director
    800-462-1017, ext. 203

    Bill Ebersole
    713-457-1650, ext. 201

    Share this post